Socking it to inflation?
Federal Reserve Chair nominee Warsh pledged not to be US President Trump’s “sock puppet”. Markets will want to see proof of that.
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Accommodating spending
US consumers are expected to find ways to keep on spending on non-oil products in March. The longer the war lasts, the harder that is to do.
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Does the EU beat the US at AI?
AI may be most effective in helping workers with mid-level education skills. That could put the US at a competitive disadvantage.
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March 2020
Markets know economic damage is coming, and structural changes are being triggered. There is insufficient data to properly assess that.
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Policy responses
A selection of central bank speakers have been signaling a cautious, watchful response to the Gulf war.
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The Middle East lockdown
Economically, the Gulf war acts like the pandemic lockdown for the region. States are borrowing to keep economies moving.
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The Middle East lockdown
Economically, the Gulf war acts like the pandemic lockdown for the region. States are borrowing to keep economies moving.
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I would say Bessent is implicitly admitting that China’s exporters found creative ways to lower the effective tariff rate though avoidance tactics and thus lessen the economic damage / cost to the US consumer (who ultimately paid the tariff but does not get the refund).
In the first instance yes. But would (presumably) end up in China.
It is impolite to mention that almost certainly the subsidiary would have charged (reduced price plus reduced tariff plus markup to get back to original price) to the next stage down in the supply chain.
If a Chinese company had a US subsidiary and it exported to that subsidiary at a reduced price it will have paid an illegal tariff on that reduced price and the US subsidiary is entitled to a refund which it might remit to its parent.
Immediately after WWII there was a significant concern in the UK government about a horsepower shortage in agriculture, because the British were eating too many horses.
hansard.parliament.uk/commons/1948...
Keeping the optimistic bias
There has been enough talk of further Iran-US negotiations to give the idea credibility, and markets are credulous of anything optimistic.
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The UK and European public might be better positioned than the US public to manage this. US GDP gets a boost but most US consumers are not shareholders in oil companies, only oil consumers. Savings rates are higher in Europe (and have been rising in the UK) cushioning consumers even as GDP suffers.
Bloomberg's apparent desire to relentlessly focus on negative headlines when reporting any UK data would be more palatable if they were consistent. I get that there is a need to sensationalise and that bad news gets clicks, but I do feel that the policy should be universally applied, or not at all.
The UK bids were at a record, with pricing at the tight end of the range. The Japanese 20 year auction overnight had a the best demand ratio since 2019 (so, not a record), and the highest yield since (I think) 1996. The Japanese demand ratio gets the Bloomberg headline, not the 30 year high in yield
In other news the UK 10 year market rate has been the highest since 2008 for a little while. French 10 year yields are (roughly) the highest since 2009, German and Netherlands the highest since 2011. Somehow I suspect Bloomberg will fail to use similar comparisons in reporting their auctions.
The Hormuz run
A China-owned tanker is attempting to leave the Strait of Hormuz, testing the reported US naval blockade. Traders remain optimistic (of course).
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The US especially has hidden restaurant inflation. Credit card use prompts you to tip. Middle choice bias and a creeping increase in the tip options presented guides you to pay a higher tip. Tips are not included in CPI, but still increase the cost of eating out. Service charges are included in CPI
Optimistic bias versus bad news
The failure of Iran-US talks pushed oil prices up and equities down, but markets remain biased to optimism in considering possible outcomes.
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Driving fuel demand
Motor fuel demand has come down across many countries. Pricing is one way to achieve that, if governments do not intervene.
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Affording a war
Today’s US inflation data offers insights into the affordability crisis (a political issue) and damage to spending power (an economic issue).
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Those tolls were cancelled after 52 years, though. Chances of Iran doing that?
Fragile or failing?
Shipping is still not (generally) sailing through the Strait of Hormuz. Iran’s relative power is relevant for longer-term risk premia.
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The spoils of war
Markets have shown an optimistic bias and seem inclined to treat a ceasefire as the end of the war. Long-term consequences remain.
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Deadlines challenge the optimism bias
Damaging infrastructure in the Gulf region would keep oil higher for longer.
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War and affordability
Markets are still looking for good news to respond to—but this week’s US consumer price data is likely to highlight the affordability crisis.
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That’s nothing. We have cattle grids in Leytonstone - zone 3
Sunny days ahead?
Fuel price inflation is already obvious, and fears of food price inflation are increasing. But does fertilizer matter if the sun shines?
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Markets wanted something different
US President Trump’s remarks did not give investors what they wanted. Even a short-lived escalation raises longer-term economic risks.
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